Pros and Cons of Adjustable Rate Mortgages, by Clyde Brown, Fremont, Pleasanton, San Jose Mortgage Expert

A borrower in the Fremont, Pleasanton, San Jose area can become intrigued with an ARM product because the initial rate of interest for the first fixed period is usually less than that of a traditional 30 year fixed rate mortgage.  In recent months this has become less true due to factors in the yield curve which has made long term rates as attractive to lenders as short term rates.  Also, the government owned lenders, Fannie Mae and Freddie Mac have been offering very attractive fixed rates on mortgages.  That being said, in most normal financial environments, the initial rate on an ARM will be lower than the fixed rate, thus offering a borrower the opportunity to save money during the initial term.

Borrowers in the Fremont, Pleasanton, San Jose area may choose to take the savings and use it to reduce the balance of their mortgage, or to use the savings for home improvements, or any other household needs.  The most useful purpose of an ARM for a borrower is when a borrower is purchasing a home that they believe they will not be staying in for a long period of time.  Mortgage expert Clyde Brown suggests ARMs are well suited for a person who knows that their job takes them to different locations every few years, and therefore will not be in the home for the length of 20 or 30 years.  Another example is of a person buying a starter home with the expectation of significant salary increases coming in the next few years that will allow them to buy a "move up" house.  Another reason to use this type of loan would be if the borrower believes that long term interest rates are expected to go down over the next couple of years.

The pro's of an ARM are as stated above: expectation of need to move; expectation of increased income, and expectation of lower rates in the future.

The con's of an arm are: Expected increased income never materializes, rates do no go lower in the future, credit problems arise and refinance becomes impossible, market values go down 30 to 40 percent and refinance becomes impossible.  The cons of this type of loan are happening now in the market.

Many people with ARMs are facing one or more of the con's I have just described, and they are faced with annual increases in their mortgage rate that they cannot do anything to cure.  It is becoming clear that ARMs should only be used by people who have a very specific need and reasonable certainty that the future financial picture will not change.  The experts at Legacy Real Estate & Associates can help you determine if an adjustable rate mortgage is right for you.  If you would like to discuss your individual mortgage needs contact Clyde Brown at 510-371-4237 or email at Clyde@ClydeBrownHomes.com.
There is a lot of free information available to you about buying, selling, investing, or relocating in the Fremont real estate market. For complete information about the Fremont Ca real estate market including current Fremont homes for sale, property values, market conditions and more please visit the most complete website dedicated to everything Fremont real estate related. www.ClydeBrownHomes.com.

If you or someone you know are in need of a competent and experienced Fremont real estate agent in or near Fremont Ca, or have real estate or mortgage related questions, please feel free to contact me I will be more than glad to answer your questions. Call me at 800-839-0665 or email me at Clyde@ClydeBrownHomes.com. Clyde Brown Legacy Real Estate & Associates.